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Crypto Market Roiled by New Allegations Against Tether, Bitfinex (bloomberg.com)
454 points by seibelj 52 days ago | hide | past | web | favorite | 303 comments

The usual blog when it comes to Bitfinex.


Alex Jones too... The majority of this blog is just conspiracy-p0rn.

Anyway, if you are really interested in actual related news and facts just follow https://www.theblockcrypto.com or similar.

Everyone agree's that tether should have a 1-to-1 backing.

The delicious irony in it all is that the money in your bank is backed by about $0.10 for every dollar they owe savers.

I hope for the day when people expect the same of the banking system that underpins the whole economy.

There's a huge difference: Yes, the bank only holds $0.10 in cash, but at least in the US, the F.D.I.C. backs up every dollar in your bank account up to $250,000. That's a major reason the reserve banking system functions.

If there were an F.D.I.C. for tether then I'm sure people would have different expectations (and likewise, if there were no F.D.I.C. for the US banking system).

The FDIC is more a feel-good measure:

>"Currently, the Deposit Insurance Fund (DIF), which is a fund set aside to cover the insurance obligations of the FDIC, has a required reserve ratio of only 1.35%. And that is only after a decision was made in October of 2015 to raise it, from its original level of 1.15%. Even more daunting, the DIF has until 2020 to reach this new 1.35% required reserve level. This means that, using the newly designated 1.35%, the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring. Feeling secure? And, sadly, the reality is even less reassuring.

On a macro scale, the FDIC currently “insures” $10.8 trillion of deposits, yet the DIF only has $52 billion of actual cash with which to insure that massive amount of money. Quite a massive shortfall, and well below the measly 1.35% that it is required by law to maintain." http://www.escapeartist.com/assetprotection/what-does-fdic-i...

In the end the fed can print the dollars too, at the expense of inflation... but who knows what schemes they have come up with.

> The FDIC is more a feel-good measure

No, it isn't. If the FDIC busts, the government would step in to back it up. Moreover, the FDIC's oversight keeps bank failures to a tiny fraction of the alternative, which we can now measure in the massive rates of fraud and failure around cryptocurrencies.

The FDIC and other schemes to intervene in the case of bad banks allows banks to get so huge they can't be allowed to fail. Then everyone needs to pay for the idiots who put their money into bad banks.

In fact, it becomes smart to put your money in these poorly run banks since they will make more money on riskier activities but get bailed out when the same fail...

Many people are dissatisfied with this situation.

> Many people are dissatisfied with this situation

As am I. But the carnage in cryptocurrencies is a reminder that the status quo beats anarchy or random stabs in the dark.

A human tendency with inefficient systems is to throw out the baby with the bathwater. There are reasonable discussions to be had around reforming and renewing the FDIC to be more friendly to new entrants.

>"As am I. But the carnage in cryptocurrencies is a reminder that the status quo beats anarchy or random stabs in the dark."

The situation with bad cryptocurrency exchanges failing does not remind me of that at all. It is far superior since only the people who leave their money in the bad exchanges get punished.

Under your preferred system I get held hostage even though I can see clearly something is wrong.

> the DIF is only required by law to have $3375 on hand for every $250,000 it is currently insuring

This is a silly thing to complain about.

Surely you don't think your car/home insurance company keeps the cash value of all the property they insure on hand? They keep a tiny fraction of what they've insured, to cover the tiny fraction that gets claimed as a loss in an average year.

The government is able to issue debt.

I can only imagine what would happen to the value of that USD were the FDIC invoked.

No need to imagine. It's a pretty routine procedure.


> The next day, Ric Carey, an Umpqua vice president, heads into that meeting. "The FDIC had taken a location approximately two miles from the main office of the bank in a hotel under a different name," he says later. "And they've been through quite a few of these. I think one of the gentlemen leading the discussion said, 'You know, I've done over 200 of these over my 25 years, and let me tell you how it's going to work.' "

FDIC insurance has been invoked many times in its history, including over 14 billion in payments over the last decade.

$14 billion is hardly significant. The USD index certainly wasn't good until very recently: https://fred.stlouisfed.org/graph/?g=nJWC

My bank in Australia has $500 billion AUD (~$350B USD) of cash deposits on it's liability book. That's just one bank.

You fail to understand how bank reserves work.

> your bank is backed by about $0.10 for every dollar they owe savers.

And the bank has the other $0.90 in long-term assets.

While no bank can survive every depositor wanting every dollar out of their chequing account on the same day, there is something auditable backing each dollar of deposit.

Not to mention the insurance for that $0.90, should those long-term assets go caput.

And if the value of all long-term assets goes down by 50%, your 50% payout will buy just as much as it did before.

Yeah, if you are that far up the ladder. If you are the regular Joe just wanting to buy some groceries, chances are those are 50% more expensive in the same climate.

No bank can survive 20% of depositors wanting their money over 3 months.

Those long-term assets (aka loans) aren't guaranteed, realisable to pay creditors nor of fixed value.

> Those long-term assets (aka loans) aren't guaranteed

They can be sold to the Federal Reserve at its discount window. That's a founding reason for the Fed's existence. Ensuring liquidity crises don't prompt solvency ones.

Socialised losses for private gain is acceptable I guess?

>> The delicious irony in it all is that the money in your bank is backed by about $0.10 for every dollar they owe savers.

I'll be generous and assume you know thtat banks don't store your money in a big vault a la Scrooge McDuck

There's a big difference between banks redistributing your money as loans and mortgages vs. a cryptocurrency tied to a supposed dollar-backed instrument 100% controlled by the same party. The entire premise of fiscal policy depends on their being a difference.

If you want to secure 100% of your money you're welcome to put it in a safety deposit box.

You misunderstood. With the "Fractional Reserve Banking" system, banks lend out money that is NOT under deposit. They are licensed to lend out money created from nothing. This is the mechanism by which money is created https://courses.lumenlearning.com/boundless-economics/chapte...

Yes everyone knows this. However, the difference is regulation, collateral, and FDIC insurance. There's been a huge number of instances of exchanges or other parties screwing over Bitcoin users, but there has not been a single loss of bank deposits since the FDIC has existed.

No one is actually checking that Tether backs their currency 100%, you know.

The person I was replying to actually did not know that. The irony is was that bank deposits are also a ponzi scheme like Tether. Deposits are backed by taxpayer bailouts in some countries. In New Zealand we have fractional reserve banking without the deposit insurance. It's a well regulated ponzi scheme but not guaranteed against a bank run.

> banks lend out money that is NOT under deposit

What do you mean? From that link: “banks lend out most of the deposits they have collected”, “keep a fraction of their deposits in reserve and may loan out the rest”. Obviously they can not hold and lend the money at the same time.

They lend out MORE than was deposited. They literally create money out of nothing and lend it. That is how fiat money is created.

They don’t.

Believe it or not, this is an official, legal mechanism of money creation. https://en.wikipedia.org/wiki/Money_creation#Fractional_rese...

I'm pretty sure most people here understand how fractional banking works. Tether isn't a bank, it's claiming to be a currency, and not only that but one that is fully backed by the reserves of their US dollars.

This is like a government claiming they lost their most sovereign currency and have no idea where it went.

Now, the USD is the most trustworthy fiat currency on the planet, but it's a little (ironic? don't know) interesting the USD in turn is also a scheme of sorts. Albeit with a very powerful guarantor. But as others have said here, the banks don't hold funds for all their accounts. If each Tether was backed not only by funds in a bank, but actual funds at the Fed, that would be a true 1:1 backing.


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